If the New Zealand economy was a tennis player, it would be Maria Sharapova – a player reportedly reliant on artificial stimulants, and corporate endorsements. In similar vein, our economy is seemingly dependent on artificial boosts to activity from (a) construction, driven by the Christchurch earthquake and the Auckland housing bubble (b) tourism, driven by our declining dollar and (c) a series of RBNZ interest rate cuts. None of which is a sustainable path to growth.
Quite the contrary: the productive side of the economy remains in a depressed, deflated state. Yet on cue the bank economists continue to fulfil their rent-a-quote role by claiming that our GDP growth is still looking fine and is better than most; and so it is, yet only in a Sharapova sense. Sure, one can readily understand why bank economists would want to sing the praises of government policy settings that vastly enrich their employers. Last year, the four major banks raked off a massive $4.59 billion in profits from New Zealanders, thereby exceeding the rates of return these same Aussie banks are managing to cream off the folks back at home.
True to form, the Aussie banks are now refusing to pass on all – or in some cases, any – of the RBNZ’s recent interest rate cut. The banks are simply pocketing the money. In vain, RBNZ governor Graeme Wheeler has said that he expects the interest rate cut to be passed on to borrowers. Well, now… is the government furiously denouncing this daylight robbery of local firms wishing to invest, of dairy farmers trying to re-finance their debt, or of Kiwi families trying to pay off their mortgages? Evidently not. Is the government worried that the whole purpose of the RBNZ’s policy moves is now being frustrated by Aussie banks who are effectively holding the country to ransom? Not so much. Here’s Finance Minister Bill English from an interview on the weekend’s Q&A TV programme:
I’m not overly concerned in the sense that there’s some way to go. They may not have passed it on immediately. They’ve got some argument that because of this global volatility we’ve all been talking about, that raising money offshore is a bit more expensive than it used to be.”
Right. So…if Aussie banks are having to pay more to raise money offshore, its quite OK with English if they raid the pockets of New Zealanders to cover that cost. You and I might think the banks could afford to suck that cost up, given their current profits. Not so. Here’s how the rest of that argument played out:
Q. What’s the point in having an Official Cash Rate if it’s not being passed on at a time when the Reserve Bank is very worried about low inflation turning into a self-fulfilling prophecy? And yet it’s not getting the bang for buck.
EngIish : You’d need to talk to the banks about exactly where the Official Cash Rate fits in their systems. It’s just it’s not the only influence on the cost of mortgages. There’s been times when mortgages have dropped without a drop in the cash rate because overseas funding costs dropped. It’s really a matter for the banks, and if some of them have passed it on, that’s going to put pressure on the rest of them.
Right. So if you’re Bill English, you don’t care too much if the banks feed the deflationary trends in the economy, for their own ends. But that about the impact on people with mortgages?
Q. Okay. Can you give mortgage holders an assurance that if over the course of the year and we see more cuts from the Reserve Bank, which is highly likely, and the banks aren’t passing that on, will you talk to the banks? Will you pressure them? Can you give them an assurance you will do everything you can to make sure they do?
English : I wouldn’t give them an assurance that it’s certainly going to be passed on because that’s not our business. But we’re always talking to the banks about how they’re dealing with the public, how they’re dealing with the dairy sector, and we would express a view that mortgage holders would expect it to be passed on. In the end, they have to keep their customers, and I think in the long run it’s the competition that has the most impact on the banks. It’s what other banks are doing that matters…..
Then comes the really outrageous bit, as English comes close to claiming that it was the profit gouging by the Aussie banks that protected New Zealanders from the worst of the Global Financial Crisis! Yikes:
Q But they’re making $4.5 billion in profits in the last year from what I can see – the big four banks. Surely they can afford to pass on a 25-point basis cut.
English : Well, I’m sure every mortgage holder thinks that. We’ll just see how the competition–
Q. But do you?
English : Well, we’ll just see how the competition sorts it out. In the long run, we need profitable, stable banks. This country’s benefited from that over the last seven or eight years when a lot of countries have had the opposite problem, and that is banks that weren’t profitable. So it’s up to the banks to make those decisions and competition’s the best way to sort it out.
Yes, because that ‘competition’ between the Aussie banks has been working so well, so far, in preventing the profiteering from Kiwi firms, farmers and families with mortgages. Like Sharapova, this government seems more adept at looking good in its photo opportunities, and raking in its corporate endorsements.
This month’s Werewolf cover story reported on how the European Union has developed a new, judicially balanced and transparent system for resolving trade disputes.
For over a year, the EU has been promoting this system to replace the controversial investor state dispute settlement (ISDS) mechanisms contained in the Trans Pacific Partnership deal. So far, the New Zealand government hasn’t commented on this development. Despite the Key government’s protestations that the TPP would be a modern deal for the 21st century, our government seems content with ISDS processes that are already patently out of date.
The rest of the world is reacting differently. Canada has just re-worked its signed – but not yet ratified – trade deal with the European Union. Reportedly, it has dumped the ISDS measures and replaced them with the new EU proposals:
The agreement’s so-called investor-state dispute regime was threatening to become a deal breaker, with opponents in the European Parliament vowing to block ratification of the entire deal unless changes were made. Critics worried that companies would use the ad hoc private arbitration process to undermine legitimate health, safety and environmental laws….
The redrafted Comprehensive Economic and Trade Agreement (CETA) creates a permanent tribunal, with members appointed by the two sides, as well as an appeal process to reverse potential legal errors. There is also tougher language enshrining the right of governments to regulate.
European Commission officials said it’s a step toward the creation of a permanent international investment court. “By making the system work like an international court, these changes will ensure that citizens can trust it to deliver fair and objective judgments,” EU Trade Commissioner Cecilia Malmstrom said in a statement.
If the government was at all interested in making the TPP function in a fair, balanced and judicially responsible way, it would be pressing for the ISDS mechanisms in the TPP to be replaced in the same way, by the EU proposals. Last November, the EU formally notified the US that its new dispute settlement proposals will have to be a central part of the proposed TTIP trade deal between the US and Europe.
‘Tis the season for flag-voting once again. Personally I liked Tze Ming Mok’s response: “I love voting, even if it’s a choice between an imperialist anachronism and a fourth-rate corporate branding exercise for a disposable tupperware company.” At best, the postal referendum on the flag has been a nice reminder of the joys of filling up an envelope, sealing it and popping it into a post box. It is an act of social faith. Tangible posting: it could catch on. This is a great article on the rewards of writing and receiving letters in the post. If vinyl can make a comeback, why not epistolary relationships?
Back to the flag. Of all the arguments for keeping the current flag – at least until we become a republic – the worst one has to be the militaristic one: namely, that this is the emblem under which our soldiers fought and died. There was a point when boomers in particular used to laugh at this kind of patriotic death porn – and we’d put such attitudes down to the excesses of American sentimentality. Now, quite a few New Zealanders seem to be embracing military tradition as a rationale for rejecting the flag change that’s being proposed.
Right answer, but the wrong reason. If you want a reminder of just how ridiculous military sentiment about the flag can be, take a listen to Johnny Cash at his very worst: